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Module 13 Breakeven Analysis

This document discusses breakeven analysis and cost-volume-profit (CVP) analysis. It defines the breakeven point as the level of production or sales needed to cover total costs. It explains the different types of costs (fixed, variable, mixed) and how they relate to revenue and profit in a breakeven model. The document provides examples of calculating breakeven points and comparing alternatives. It also discusses relevant range and how fixed costs can change with production volume.

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Rhonita Dea Andarini
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622 views13 pages

Module 13 Breakeven Analysis

This document discusses breakeven analysis and cost-volume-profit (CVP) analysis. It defines the breakeven point as the level of production or sales needed to cover total costs. It explains the different types of costs (fixed, variable, mixed) and how they relate to revenue and profit in a breakeven model. The document provides examples of calculating breakeven points and comparing alternatives. It also discusses relevant range and how fixed costs can change with production volume.

Uploaded by

Rhonita Dea Andarini
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Module 13: Breakeven Analysis

SI-4251 Ekonomi Teknik


Muhamad Abduh, Ph.D.
Outline Module 13
 BEP
 Cost Volume Profit (CVP) Analysis
 Mixed Costs
 Element of Cost and Revenue
 Break-even Model
 Relevant Range...

2 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.


What is Break-Even Point Analysis?
 BEP analysis is one method used by business
executives to determine the number of units
or services that must be sold at a particular
price to cover all fixed and variable costs
related to that product or service. Until a
company has exceeded this point, they will
not be making any money…obviously not a
desirable outcome.

3 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.


Breakeven: A Measure of Production
Characteristic
 Any production capacity can be modeled in
terms of cost and revenue generating
characteristics.
 It is often questioned: “How many should one
produce in order to breakeven?”
 That question represents an inquiry on the
quantity (volume) of a production activity
that would make the cost of that production
equal to the return generated.
 In other word, breakeven point represents the
unit volume that balances the cost and the
revenue.
 Example:
 How many units should a store sell an item so that all of
4 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
the cost can be recovered from the selling of those
Breakeven: A Measure of Production
Characteristic
 ( Production ) Capacity is the potential or maximum level of output of
production, that reflects the upper limit of achievable production.
 Capacity Factor is the ratio between the average output and the maximum
capacity
 Oave
CF =
 Cmax
 ( Physical ) Efficiency is defined as the ratio between the output and
input (in %tage)
 Due to loss Physical efficiency will always be < 100%, and in the course of
production the efficiency tends to increase up to a certain point when it
then turn to decrease.
 This phenomenon is regarded as to follow the “Law of Diminishing Return”
100%
efficiency

output
5 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
Cost Volume Profit (CVP) Analysis
 Costs change in response to changes in
a cost driver
 Cost driver - any factor whose change
makes a difference in a related total
cost
 Volume (units or dollars) - most
prominent cost driver in cost-volume-
profit (CVP) analysis
 Cost behavior:
 Variable cost
 Fixed cost
6 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
 Mixed cost
Mixed Costs

Variable

Fixed

7 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.


Element of Cost and Revenue
($)
income
revenue
Income
Cost

total cost (mixed cost)

variable cost

fixed cost

output
BEP ( unit )
8 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
Break-even Model
($)

FC I = income
Income

∗
N =
Cost

it
I − VC pr
o f
TC = total cost
of
ea
ar

VC = variable cost

ss
lo
of
ea
ar
FC = fixed cost

output
BEP ( unit )
9 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
Non-linear Break-even Model
($) I = income TC = total cost
Income
Cost

VC = variable cost

FC = fixed cost

output
( unit )
BEP
10 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
Comparing Two Alternatives
($)

I = income
Income
Cost

mixed cost - 2

mixed cost - 1

output
( unit )
BEP-1 BEP-2
11 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
Relevant Range...
Relevant range is a band of volume in which a specific

relationship exists between cost and volume.


 Outside the relevant range, the cost either increases or
decreases.
 A fixed cost is fixed only within a given relevant range and a
given time span.
$160,000
stsoC dexiF

–
$120,000
– Relevant Range
$80,000
–
$40,000
–

–
–
0 5,000 10,000 15,000 20,000 25,000
Volume in Units
12 SI-4251 Ekonomi TeknikMuhamad Abduh, Ph.D.
Homework
John Doe is planning to start a business

venture in construction material supply.


He has calculated that he needs to spend
Rp28,5 millions for fixed expenses,
and additional cost of Rp350,000
for every unit sold.
 If he is expecting at least a profit of Rp
20,5 millions, how many units should
he sell the material @ Rp 250,000 a
unit?
 If he estimated to sell only 85% of that
numbers, how much should he set the
13 unit price in order to Ekonomi
SI-4251 secure profitAbduh,
TeknikMuhamad of Ph.D.
Rp

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